On 25 September 2015 in Washington D.C, the United States and China released a joint statement on climate change. China’s President Xi Jinping announced that the country will launch a national emissions trading system (ETS) in 2017. The mandatory system will cover key sectors such as power generation, iron and steel, chemicals, building materials, paper making and non-ferrous metals. Once launched, the China ETS is expected to be the largest in the world. 

The national system would expand on the seven existing ETS pilots that are already operating in Chinese cities and provinces. The pilot schemes cover seven economically diverse regions including, the populous Beijing and Guangdong provinces, as well as the industrial Shenzhen province. Allowances prices have varied across provinces but are comparable with international markets. As well as learnings from the domestic experience, the national ETS will build from experience from international carbon markets through on-going projects with the World Bank and European Union.

This announcement is in line with China’s Intended Nationally Determined Contribution (INDC (Chinese); INDC (unofficial English translation)), which was submitted on 30 June and explicitly endorsed emissions trading as an important tool for China to achieve its post-2020 climate targets. It also comes a week after the US-China Climate Leaders’ Declaration, in which Chinese and American subnational jurisdictions pledged to substantially reduce their emissions before 2030.

It further builds on the joint announcement in November 2014, in which both the United States and China committed to reducing their greenhouse gas emissions. China pledged to peak its emissions by around 2030 and the United States committed to reduce emissions by 26-28% below 2005 levels by 2025.

Besides the national carbon market announcement, the joint statement encompasses a common vision for a new global climate agreement to be concluded this December, other complimentary domestic climate policy announcements and commitments to global climate finance, notably, a new climate finance commitment of CNY 20 billion (EUR 2.81 billion). China also pledged to lower CO2 emissions per unit of GDP by 60-65% below 2005 levels by 2030. In achieving these targets, Mr. Xi stated China will also look into reducing emissions in industries and sectors not covered by ETS, like the transportation sector.

Climate change cooperation between the world’s two largest emitters sends a strong signal to other countries to take climate action and provides significant momentum in the lead-up to the Conference of the Parties (COP21) in Paris, December 2015.